PFE - Achieve Life Sciences: All Eyes On Phase 3 Data For Smoking Cessation Drug

Summary

• ORCA-2 phase 3 trial was a success where Cytisinicline has shown statistically significant improvement in quit rates and robust safety profile.
• Phase 3 ORCA-3 registration trial is ongoing, and we expect the data readout in 2Q 2023; we expect the results to be positive.
• The company has received $18.9m private placement and secured a patent around the formulation of the drug, further de-risking the stock.
• We reiterate buy rating.

Our take in 2023

Since we initiated Achieve Life Sciences ( ACHV ) back in April last year, there have been many positive newsflows that happened to the company. This article is a short update of my views on the company. The biggest news last year was the positive data from the ORCA-2 phase 3 study, which enrolled around 810 patients and evaluated the efficacy and safety of 3.0mg Cytisinicline vs. placebo when administered 3 times per day for up to 12 weeks. The patient population enrolled were smokers who consume more than 10 cigarettes per day and expired air CO>10 ppm. As we expected, in both treatment schedules (6 weeks & 12 weeks), Cytisinicline has met both primary and secondary endpoints with statistical significance (p < 0.0001) at month 1 and month 3. The drug once again showed clean safety without any treatment-related serious adverse events; the most common adverse events were insomnia, abnormal dreams, headache, and nausea, which is manageable in our view and superior to Pfizer's ( PFE ) Champix.

Moving forward, we expect the phase 3 ORCA-3 final registration trial to release top-line data around Q2 2023. As the ORCA-3 trial mirrors the phase 3 ORCA-2 and the sample size is similar, 750 vs. 810, we believe the chance of success is very high.

Furthermore, Achieve Life Sciences announced last December that the U.S. Patent and Trademark Office (USPTO) issued Patent No. 11,459,328 covering the mesylate salt formulation of cytisinicline and the process for its development. As discussed in our previous article, our biggest worry revolved around the IP moat; although the patent is not a composition of matter patent, we find comfort in the fact that the drug has some sort of patent protection.

Also, the company secured additional capital around last Nov, and now the company holds $18M in cash and is trading at an enterprise value of $81m.

Risks

Competition and commercialization-related risks, as the company has not partnered up with a partner with a robust commercial track record, sales print could underwhelm our expectations. Regulatory and clinical risk remains until they receive FDA and EMA approval. The recent private placement seems to include warrants as well, ~4.1M units at $4.625/unit, with each unit consisting of two shares and one warrant to buy a share. Therefore, if not already exercised, there is a chance of around 4.1M additional shares (around 20M if fully diluted) that can potentially dilute the current stock price, which is a potential concern down the road.

Conclusion

Although the stock price has not performed since we initiated last year, we continue to like the fundamentals of the company, and with the consistently robust clinical data that we have seen in ORCA-1 and ORCA-2. We build a high degree of conviction in the registrational phase 3 ORCA-3 trial (data expected by Q2 2023), which we believe can drive up the stock price materially if it is positive (similar to ORCA-2). Hence, we maintain a buy rating.

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